Priory Caring Services Ltd v Capita Property Services Ltd

A general release is construed by ordinary contractual principles in its contractual matrix. The court must identify the subject matter at which the release was directed. Clear and broad wording may cover unknown claims arising from that subject matter. The cautionary principle that courts should be slow to infer surrender of unknown rights does not prevent a release of latent-defect claims where the parties knew of possible negligence and the wording covers the relevant professional appointment. In construction disputes, later discovery of damage does not by itself take a claim outside a release. The court must also consider whether sharp practice affects construction. Fresh fraud allegations or evidence on appeal are subject to an exceptional gateway, with the ordinary course being a new action.

Priory claimed damages from Capita for alleged negligence in the design, specification and supervision of repairs to its hotel after a fire. It discovered serious damp penetration in 2005. Capita relied on a letter agreement dated 10 March 2003, by which Priory undertook not to issue proceedings concerning Capita’s appointment as surveyors in relation to the hotel.

On a preliminary issue, His Honour Judge Stephen Davies, sitting in the Technology and Construction Court at Liverpool, held that the release was wide enough to cover Priory’s claim and struck out the proceedings by order dated 6 February 2009. Priory appealed, challenging construction, consideration, the refusal of fresh evidence, procedural fairness, and seeking to introduce a new fraud ground. The central issue was whether the release covered a later-discovered negligence claim concerning latent defects.

Disposition. The appeal was dismissed. Applications to adduce further evidence, renew a procedural ground, and introduce a new fraud allegation were refused.

1. Construction of the release. The scope of a release is a question of ordinary contractual interpretation, assessed against the contractual matrix and the subject matter to which the release was directed. The cautionary principle identified in Bank of Credit and Commerce International SA v Ali [2001] UKHL 8 is guidance rather than a rule of law. It does not prevent clear language from releasing unknown claims. The claim in Ali was materially different because it concerned a claim which, as the law then stood, could not realistically have been contemplated.
2. The reasoning in Mostcash Plc v Fluor Ltd [2002] EWCA Civ 975 was applicable in the construction context. Latent defects are a recognised risk of construction and professional services, and may emerge years later. Priory knew of serious concerns about Mr Owen’s competence and honesty and contemplated possible negligence claims. The letter was directed to Capita’s appointment as surveyors in relation to the hotel, not merely to expert services for the insurance arbitration or to fees. The later discovery of damp therefore did not take the claim outside the release.
3. The release was supported by consideration. Capita limited its claim for fees and Mr Murray provided a witness statement which conferred a practical benefit on Priory. The lack-of-consideration point was therefore rejected.
4. The further evidence failed the Ladd v Marshall [1954] 1 WLR 1489 requirements. The material was reasonably available before trial, there was no satisfactory explanation for the delay, and it added no material assistance. The procedural complaint also failed. The parties had agreed the preliminary issue and directions without disclosure, and Civil Procedure Rules 1998 rules 31.5(2) and 52.11(3)(b) did not justify reopening the appeal.
5. The new fraud ground was unparticularised and based on evidence and allegations that were not genuinely new. Although an exceptional discretion exists, the ordinary rule is that newly discovered fraud should be pursued in fresh proceedings, as illustrated by Jones Co v Beard [1930] AC 298 and the later authorities cited. The attempted derailment of the appeal was without merit.

The court noted the possible relevance of sharp practice where a release beneficiary knows of a claim and of the other party’s ignorance, but that issue had not been properly raised or decided.

• Court of Appeal (Civil Division): Priory’s appeal was dismissed. The court refused the applications concerning fresh evidence, procedural irregularity, and the proposed fraud ground.
• Queen’s Bench Division, Technology and Construction Court, Liverpool District Registry: His Honour Judge Stephen Davies determined the preliminary issue in Capita’s favour, held that the 10 March 2003 release covered the claim, and struck out Priory’s proceedings by order dated 6 February 2009.